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When a financial account holder authorizes someone to act on his behalf using a power of attorney, it is critical the proper language be used. However, regardless of how the power of attorney is worded, all individual retirement accounts remain the sole property of the maker, not of the "attorney-in-fact" or agent who is authorized by the power of attorney.

Financial Power of Attorney

When granting a financial power of attorney to a third party, it is important to make sure the language covers everything that you wish to have handled on your behalf. For example, a brokerage house holding investments often asks account holders to provide it with a limited financial power of attorney to allow trades to be placed on their behalf. However, regardless of what language is used, changing the name on an individual retirement account is not allowed with a power of attorney. The power of attorney is meant to manage finances, not change the ownership. When you change the name on an individual retirement account, you change the account ownership.

Power of Attorney Rights and Obligations

A power of attorney allows a third party to manage finances on behalf of the maker. However, in the case of an individual retirement account, there are tax implications of changing ownership. Most individual retirement account custodians allow for distributions from an IRA in limited circumstances. An IRA can change ownership when the original owner has died, or when a court order from a divorce or settlement is issued to the custodian. In both of these cases, there may be taxable consequences to the account holder or their estate. Those who have been appointed as an attorney-in-fact through a power of attorney are not permitted to change the ownership of any assets, unless those powers are specifically granted in the power of attorney document. However, IRA custodians may not accept this change regardless of how the document is worded.

Tax Implications and Fiduciary Role

When an individual retirement account changes ownership, there are tax implications. These tax penalties must be born by the account holder. If ownership changes because of death or divorce, these penalties are typically waived. However, when someone is acting as a fiduciary, such as when they have a power of attorney, their obligation is to act in the best interest of the account owner. Creating a tax burden is seldom, if ever, in the best interest of an individual retirement account owner.

Account Ownership Changes Everything

Individual retirement accounts are one of the few financial accounts for which an account holder can specify a beneficiary. If the owner dies, any named beneficiaries receive any assets remaining in the account. If a power of attorney could be used to legally to change the account owner, the original wishes of the account owner would be invalidated.

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About the Author

Doreen Martel is a writer specializing in finance, nonprofit organizations and real estate. She has worked in the financial industry for more than 20 years. Martel is a graduate of Dean College in Franklin, Mass., holding a certificate in accounting.

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